A New Way of Looking at Trade

A NEW WAY OF LOOKING AT TRADE Asia’s Advantage amid Changing Global Trade Yu-Ming Wang, Global Head of Investment & CIO, International Nikko Asset Management Co., Ltd. 2017/02/20 For Qualified Institutional Investors Only en.nikkoam.com

CONFIDENTIAL – NOT FOR REDISTRIBUTION

EXPORTS FROM US, CHINA AS SHARE OF GLOBAL TOTAL (1996-2015) China has surpassed USA as #1 exporter

16.0%

USA, China Exports: Share of Global Total

14.0% 12.0%

China

10.0% 8.0%

USA 6.0% 4.0% 2.0% 0.0%

Source: World Trade Organization

Confidential – Not For Redistribution. This material must be read in conjunction with the ‘Important Information’ statement on the last page 2

IMPORTS OF US, CHINA AS SHARE OF GLOBAL TOTAL (20002015) USA still biggest market for exporters, but gap with China shrinking

Imports as Share of Global Total 20.0% 18.0% 16.0%

USA importsfrom world

14.0% 12.0% 10.0%

USA excluding NAFTA

China imports from world

8.0% 6.0%

China excluding EU+NAFTA

4.0% 2.0% 0.0%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: World Trade Organization

Confidential – Not For Redistribution. This material must be read in conjunction with the ‘Important Information’ statement on the last page 3

SERVICE IMPORTS OF US, CHINA AS SHARE OF GLOBAL TOTAL (2005-2015) Service imports: China has caught up with USA

14.0%

Service Imports as Share of Global Total

12.0%

USA 10.0%

8.0%

6.0%

China

4.0%

2.0%

0.0% 2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Source: World Trade Organization

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MAJOR DESTINATIONS FOR ASIAN EXPORTS

China #1 destination of exports from Asian countries

Asia’s Main Export Markets China imports* from

ASIA EXPORTS TO JAPAN 12% ASIA EXPORTS TO EU 24%

ASIA EXPORTS TO USA 20%

ASIA EXPORTS TO CHINA 44%

KOREA

133,796

TAIWAN

111,314

JAPAN

109,364

SINGAPORE

88,328

AUSTRALIA

61,245

MALAYSIA

25,983

THAILAND

23,796

VIETNAM

16,049

INDONESIA

15,028

INDIA

12,289

PHILIPPINES

6,393

NEW ZEALAND

6,047

*USD, millions Source: World Trade Organization; Korea, Taiwan, Philippines, Vietnam, Thailand, Malaysia, Indonesia, Singapore, India trade with China as of 2015.

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BREAKDOWN OF RETAIL PRICE OF APPLE IPHONE7

Real “Gold” in value chain’s intellectual property; still mostly sitting in Silicon Valley

Apple iPhone7 Retail Price=USD 658

Apple USD 257 (39%)

Distribution USD 86 (13%)

Materials USD 265 (40%)

Taiwan USD 61 (9%) Korea USD 40 (6%) EU USD 7 (1%)

Assembly USD 6 (1%)

Miscellaneous USD 44 (7%)

USA USD 70 (11%) Japan USD 46 (7%) China USD 12 (2%)

Other USD 29 (4%)

Source: Nikko AM; estimates based on proprietary research; proportion of non-material cost components based on assumption that proportions would be similar to those of iPhone4

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TOTAL PATENTS FILED SINCE: CHINA, USA & JAPAN (2000-2015)

China has surpassed USA in patent filing

Thousands

Total Patents Filed 1200

1000

China 800

USA

600

400

Japan 200

0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: World Trade Organization Confidential – Not For Redistribution. This material must be read in conjunction with the ‘Important Information’ statement on the last page 7

DOMESTIC R&D SPENDING OF 5 MAJOR ECONOMIES (20002015) Domestic R&D Spending (% of GDP) China R&D 4.5 spending 4 recently Korea surpasses 3.5 Japan Europe, 3 closing in USA on USA 2.5 China 2

EU28 1.5

1

0.5

0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: World Trade Organization Confidential – Not For Redistribution. This material must be read in conjunction with the ‘Important Information’ statement on the last page 8

JOURNAL ARTICLES CITING “DEEP LEARNING”, “DEEP NEURAL NETWORK” China catching up in cuttingedge sectors (e.g.

AI)

Journal articles cited at least once, mentioning “deep learning” or “deep neural network”, by nation. Source: National Artificial Intelligence Research and Development Strategic Plan, National Science and Technology Council; search of the Web of Science Core Collection for "deep learning" or "deep neural net", limited to publications receiving one or more citations, retrieved 30 August 2016.

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FACTORS WORKING IN ASIA’S FAVOUR

─ Population (especially middle income) drives growth

─ Size of domestic market enables creation of multinational giants ─ Threats of trade war have limit: Asia not solely dependent on US trade

─ Real trade war is for intellectual property, talent, innovation

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